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UNCTAD: a price to pay
There is a price to pay for bloated freight rates and other supply chain issues. Felicity Landon charts the UNCTAD position and suggestions on mitigating measures
How often have we heard over the years that the public and politicians don’t understand or appreciate the importance of ports and shipping? That was largely because global supply chains (pre-pandemic) were generally swift, effi cient and uninterrupted – and therefore very much unnoticed.
Not any longer. We all tend to notice the things that affect us directly and a small ‘positive’ of 2021 was that consumers were able to make a connection between waiting for months for their new furniture to arrive and the dramatic images of the Ever Given jammed across the Suez Canal.
As the disruption to maritime transport continues, there’s more to come – unpredictable schedules, port congestion and supply chain bottlenecks show no signs of easing – the connections between freight rates and consumer prices are about to become a whole lot clearer.
The United Nations Conference on Trade and Development (UNCTAD) Review of Maritime Transport 2021 includes a chapter dedicated to the impact of the record freight rates, together with the surge in fees and surcharges. Its in-depth analysis suggests that consumer prices overall will be 1.5 per cent higher in 2023 than they would otherwise have been. Beyond that figure, the predictions are alarming. The impact will be far more for Small Island Developing States (SIDS), where prices are projected to rise by 7.5 per cent, and in Least Developed Countries (LDCs), where the increase is likely to be 2.2 per cent.
UNCTAD simulated the impact of the surge in container freight rates and concluded that global import price levels will increase on average by nearly 11 per cent. For SIDS, the increase could be as much as 24 per cent.
Goods manufactured through global, integrated supply chains will also gain a hefty price tag, says UNCTAD; for example, consumers may have to pay 11 per cent more for computers and electronic goods.
UNCTAD says that low-value-added items such as furniture, textiles, clothing and leather products, whose production is often fragmented across low-wage economies, well away from the major consumer markets, will also be heavily impacted; the simulation predicts consumer price increases of 10.2 per cent on these.
The analysis also suggests a 9.4 per cent increase in rubber and plastic products, 7.5 per cent increase for pharmaceutical products and electrical equipment, 6.9 per cent for motor vehicles and 6.4 per cent for machinery and equipment.
At the launch of the RMT in December, Rebeca Grynspan, Secretary General, UNCTAD, noted that crises such as the present one in maritime trade are often portrayed in simple terms. She mentioned a headline, “Supply chain issues will ruin Christmas”, and said: “The reality is much deeper and more worrying than that. What is at stake is not just a holiday season – it is food insecurity, it is inflation. It is a long-term challenge for developing countries in general and for SIDS in particular.”
It was also pointed out at the launch that decarbonisation regulations and the maritime industry’s path to eliminating carbon will cost money, adding more to the cost of shipping. Once again, this will have more impact on SIDS.
The report delves into the issue of turnround times in ports and how they vary significantly between countries, “producing economy of scale in countries with large and efficient ports but the opposite for those with low levels of digitalisation and inadequate infrastructure”, said Grynspan.
“These inequalities are also behind the transport costs that some in the developing world are currently facing,” she said.
8 “We are seeing
this mess due to our lack of action over the last years” - Captain Karuppiah Subramaniam, President, International Association of Ports and Harbors
Yet while more maritime trade means more economies of scale, it also means larger ships and fewer ports and more market concentration. “This is what we are seeing and this also has an effect on prices.”
NO SILVER BULLET
There is no single silver bullet on the horizon to solve the crisis but policymakers can support shippers and transport providers through a number of measures to ease the situation, explained Grynspan. It is important to advance urgent investment in soft and hard transport infrastructure, she said. Governments need to advance reform and digitalise procedures, she said – noting that pre-arrival data processing, automation, port call optimisation and digital solutions all help to speed up port and customs handling.
Following the RMT launch, the UNCTAD team held an ‘Ad Hoc Expert Meeting’ online, focusing on the maritime supply chain crisis. More than 20 speakers representing the perspective of shippers and cargo interests, industry associations, analysts, ports and government and international organisations, discussed what policymakers could do to help reduce congestion and high freight rates in the short term and provided longer-term recommendations for policymakers.
One of the key points to emerge was the importance of hinterland connections and the interdependency of the various links in the supply chain. James Hookham, Secretary General of the Global Shippers’ Forum, talked about ‘connecting the dots’ and looking at the longer-term needs of all in the shipping and logistics industry.
“Generally, we need to get governments to think about and update their perspectives on the movement of goods around the world,” he said. “National transport policy is still developed and administered and delivered in narrow modal silos. If this crisis has demonstrated anything, it is the dependency of the different modes on each other and how, as the peak of demand and flow moved through the supply chain, we moved from shortage of capacity at sea, to ports, to inland transport.” We saw this problem coming but we did not act fast enough and this pandemic certainly taught us a lesson,” he said. “Do we think the end of the pandemic is going to end this problem? We don’t think so. We have to deal with this problem for years to come.”
Ports have been the “punching bag” for many years, said Subramaniam. “We are the interface for ships; in the eyes of many people, we are seen as the final destination of ships. People are not concerned that cargo is passing through the ports to go to other areas. This is where hinterland connectivity is so important – and in many countries it is the biggest problem. We are only as strong as the weakest link. If one link is not effective, the whole supply chain is going to be ineffective.”
Ports cannot control everything but a port can be best placed to be a trade facilitator, he said, being in a better position to coordinate with clearing agencies, Customs and others in the ports.
“Ports are moving to a role as trade facilitator within the supply chain ecosystem. We need to have Single Window systems, Port Community Systems, so that data can be shared at the press of a button, with many parties simultaneously. Going forward, we need to link up with the stakeholders outside the port – warehousing, shipping agents, forwarders, Customs etc.”
GLOBAL PLAN REQUIRED
Ben van Scherpenzeel, representing the Port Call Optimisation international task force, said: “Port efficiency would help shore issues – not short term but in the long term. By allowing ships to secure their place in the queue at the terminal, it would help to give ships sufficient notice so they can decide whether it would make sense to change the rotation of the ship, select a different port, or optimise speed. Knowing that the berth system will be available three or four days away would help to use the ship in a more efficient manner than we do today.”
However, ports cannot do that alone, nor shipping lines, he said. “We need a global implementation plan – how to do this, guidance from IMO being written in the FAL committee and the mandate to implement it.”
An implementation plan is needed for the sharing of nautical and navigation data between ports, he suggested. “We need port-to-port standards to share this data, a compatible solution to translate ship movement into cargo movement and vice versa.”
Governments need to think about the dependency of their economies and imports/exports along those lines rather than seeking to address issues solely in their own modal terms, he said. “Even the European Union doesn’t do this. Recognising the interdependency of the different modes and the way they connect together would be a major learning point for policymakers in the last few months.”
More interactivity and collaboration is needed between the different parties in the supply chain, including government, and this needs to address “the inherent suspicion and mistrust that there is in the industry”, said Hookham. He urged a rethink of anti-trust regulations, “which we consider to be a cloud hanging over the industry and a hindering aspect on the market”.
THE FINAL DETONATOR
The problems in the maritime and logistics supply chain have been brewing for years – the pandemic provided the final detonator, said Captain Karuppiah Subramaniam, President, International Association of Ports and Harbors (IAPH). “We are seeing this mess due to our lack of action over the last years.
8 Ben van
